Net present value (NPV) = Present value of cash inflow - present
value of cash outflow.
|
|
Cash flow |
Discounted cash flow |
|
|
1 |
2 |
3 |
4 |
5 |
|
Year |
Project E |
Project H |
Discount rate @9% |
Project E (1*3) |
Project H (2*3) |
|
0 |
($37,000) |
($35,000) |
1 |
($37,000) |
($35,000) |
|
1 |
$9,000 |
$17,000 |
0.9174 |
$8,256.60 |
$15,595.80 |
|
2 |
$12,000 |
$18,000 |
0.8417 |
$10,100.4 |
$15,150.60 |
|
3 |
$18,000 |
$17,000 |
0.7722 |
$13,899.6 |
$13,127.40 |
|
4 |
$20,000 |
$0 |
0.7084 |
$14,168 |
$0 |
|
NPV at 0% |
$22,000 |
$17,000 |
NPV at 9% |
$9,424.60 |
$8,873.80 |
a) Determine the net present value of the projects based
on a zero percent discount rate.
|
Project E |
$22,000 |
|
Project H |
$17,000 |
b) Determine the net present value of the projects based
on a discount rate of 9 percent.
|
Project E |
$9,424.60 |
|
Project H |
$8,873.80 |
c) If the projects are not mutually
exclusive, which project(s) would you accept if the discount rate
is 9 percent?
Both H and E.
